Annual Report 2015
`
`Exhibit 1066
`IPR2017-00807
`ARGENTUM
`
`000001
`
`

`

`The company
`
`The products
`
` 2 The year in brief
` 3 The Mylan offer
` 4 CEO’s comment
` 6 Strategy and business model
` 10
`Investment story
` 12 Market
` 16 Sales and marketing
`
`Sustainability report
`
` 41
` 42
`
` 44
` 45
` 46
` 47
`
` About the sustainability report
` Focus, objectives and
`performance
` Meda in context
` Value chain
` Sustainability aspects
` Product portfolio and market
`development
` 48 Manufacturing and distribution
` 50
` Employees
` 52
` Environment
` 55
` Patient and consumer safety
` 56
` Governance
` 59
` Community engagement
` 60
` GRI content table
` 63
` Auditor’s report
`
` 20 Product portfolio
` 24 Respiratory
` 26 Dermatology
` 28 Pain and Inflammation
` Non-prescription
` 30
`products: Cx
` Non-prescription
`products: OTC
` 34 Product development
` 38 Manufacturing and supply
`
` 32
`
`Management report
`and financial reports
`
` 65 Operations
` 70 Risks
` 73 Corporate governance report
` 76 Board members
` 80 Executive management team
` 84 Accounts Group
` 90 Notes Group
` 117 Accounts parent company
` 122 Notes parent company
` 128 Statement of the board
` 129 Auditor’s report
` 130 Financial review
` 132 The Meda share
` 134 Definitions
` 135 Glossary and trademark rights
` 136 Shareholder information
`
`000002
`
`

`

`Key therapy areas and product areas1)
`
`Prescription drugs
`
`Non-prescription drugs
`
`Rx
`
`Cx
`
`OTC
`
`Respiratory
`
`Dermatology
`
`Pain and
`Inflammation
`
`Other key
`products
`
`Aerospan
`Azep/
`Astepro
`Dymista
`
`Acnatac
`Aldara
`Elidel
`Zyclara
`
`Rantudil
`Rheumon
`Zamadol
`
`Tambocor
`Thioctacid
`Uralyt
`Zyma
`
`EpiPen
` Novolizer
`Pafinur
`
`Fortilase
`Ialumar
`
`Betadine
`Babygella
`Dermasol AKN
`
`Dona/Viartril
`GO-ON
`Reparil
`
`Agiolax
`ArmoLIPID
`Legalon
`Saugella
`
`EndWarts
`Naloc
`
`CB12
`
`1) The chart shows examples of Meda’s products within selected areas.
`
`Definitions
`
`Rx
`
`Cx
`
`OTC
`
`Rx products are pre-
`scription based pharma-
`ceuticals prescribed by
`doctors and therapists
`for patients.
`
`Cx are clinically-proven
`consumer healthcare
`products recommended
`by doctors and pharma-
`cists to consumers.
`
`OTC products are over-
`the-counter products sold
`directly to consumers via
`pharmacies and retail
`chains.
`
`SALES BY THERAPY AREA 2015
`
`SALES BY PRODUCT AREA 2015
`
`Dermatology, 22%
`Respiratory, 15%
`Pain and
`Inflammation, 14%
`Cardiology, 12%
`
`Gastroenterology, 11%
`
`1)
`
`CNS , 8%
`Metabolism/vitamins, 6%
`Other, 12%
`
`1) Central Nervous System
`
`Prescription
`(Rx), 62%
`Non-prescription
`(Cx/OTC), 36%
`
`Other sales, 2%
`
`000003
`
`

`

`Mission
`
`We strive to be a fast-growing, innovative company that is open to
` different kinds of commercial models and that will be market-leading
`in certain therapy areas with prescription and non-prescription products.
`We are dedicated to providing products that serve society by increasing
`the well-being and quality of life of individuals. As a company, our aim
`is to attract the best talent and reward our employees for outstanding
`performance. Maintaining our excellent reputation is vital to us.
`
`Countries where Meda has its own sales organizations
`
`000004
`
`

`

`Vision
`
`Our vision is to become a world-
`leading specialty pharma company
`with a focus on sustainable and
` profitable growth to provide value
`for our patients, shareholders
`and other stakeholders.
`
`19,648
`
`Group sales reached
`SEK 19,648 million
`
`
`6,482
`
`EBITDA excluding
`nonrecurring items
`amounted to
`SEK 6,482 million
`
`150
`
`60
`
`Our pharmaceuticals
`are sold in more than
`150 countries
`
`Our sales organizations
`are present in over
`60 countries
`
`REVENUES BY GEOGRAPHY 2015
`
`WESTERN EUROPE, 62%
`
`EMERGING MARKETS, 19%
`
`USA, 17%
`
`OTHER SALES, 2%
`
`MEDA ANNUAL REPORT 2015
`
`1
`
`000005
`
`

`

`ThE yEAr in briEf
`
`Important events in 2015
`
`Completing the integration
`of the Italian acquisition
`Rottapharm.
`
`Dymista approved for treatment
`of seasonal allergic rhinitis in
`children aged 6 to 11.
`
`Divestment of Euromed
`manufacturing unit, a former
`Rottapharm company located
`in Spain.
`
`The year in figures
`
`• Group sales amounted to SEK 19,648 million (15,352)
`• Organic growth of –11)% (2)
`• Free cash flow excluding non-recurring items of SEK 4,172 million (3,000)
`• Free cash flow per share excluding non-recurring items of SEK 11.41 (9.28)
`•
`Increased focus on the Respiratory therapy area and the OTC portfolio
`• Profit after tax excluding non-recurring items amounted to SEK 1,531 million (1,181)
`• Earnings per share excluding non-recurring items was SEK 4.14 (3.64)
`• EBITDA excluding non recurring items amounted to SEK 6,482 million (4,700),
`equivalent to a margin of 33.0% (30.6)
`• Proposed dividend per share SEK 2.50 (2.50)
`
`NET SALES
`
`SEK million
`20,000
`
`15,000
`
`10,000
`
`5,000
`
`0
`
`2
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`2015
`
`EBITDA2)
`
`SEK million
`8,000
`
`7,000
`
`6,000
`
`5,000
`
`4,000
`
`3,000
`
`2,000
`
`1,000
`
`0
`
`FREE CASH FLOW2)
`
`SEK million
`5,000
`
`4,000
`
`3,000
`
`2,000
`
`1,000
`
`0
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`2015
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`2015
`
`1) Organic growth pro forma
`2) Excluding non-recurring items
`
`MEDA ANNUAL REPORT 2015
`
`000006
`
`

`

`iMporTAnT EvEnTs AfTEr 2015
`
`The Mylan offer
`
`On 10 February, 2016, Mylan announced a
` public offer to aquire the shares in Meda. The
`consideration consists of a combination of cash
`and Mylan shares.
`Mylan N.V. is a leading global pharmaceutical
`company whose shares are traded on the
` NASDAQ Global Select Market and the Tel Aviv
`Stock Exchange.
`The Board of Meda has made an evaluation
`of Mylan’s offer and recommends Meda’s
`shareholders to accept it. The two largest
`shareholders, Stena Sessan AB and Fidim S.r.l.,
`have undertaken to accept the offer.
`Mylan will publish an offer document that will
`be made available to all shareholders. The offer
`document is expected to be published on or
`around 19 May 2016.
`Mylan has made the offer conditional upon
`the offer being accepted to such an extent that
`Mylan becomes the owner of shares in Meda
`representing more than 90% of the total num-
`ber of shares of Meda.
`If the offer is accepted to such an extent that
`Mylan becomes the owner of shares in Meda
`
`representing more than 90% of the total num-
`ber of shares of Meda, Meda will sub sequently
`be de-listed from the Stockholm Stock Exchange.
`If shareholders representing less than 90%
`of the shares accept the offer, Mylan may
`choose to withdraw from the offer or to accept
`shares tendered in the offer in which case
`Meda may continue to be listed.
`
`The evaluation of the board of Meda
`The Board believes that there are a number of
`strategic benefits to Meda from combining its
`operations with Mylan, including:
`• Significantly strengthens and diversifies
`commercial presence:
` – Diversifies Meda’s global portfolio mix
`by strengthening branded platform and
` creates USD 1 billion business in attractive
`OTC market
` – Establishes critical mass across all com-
`mercial channels in Europe; creates a lead-
`ing US specialty business; and provides
`exciting platform for growth in new
` Emerging Markets
`
`• Enhances critical mass in key therapeutic
`areas:
` – Complementary therapeutic presence in
`all regions will create a leader in allergy
`and respiratory and a scale player in
` dermatology, pain and inflammation
` – Provides opportunity to sell combined
` portfolio in new markets
`• Financially compelling transaction:
` – Enhances size and scale with combined
`2015 sales of approximately USD 11.8
`billion and combined 2015 adjusted
`EBITDA of approximately USD 3.8 billion
` – Substantial synergy opportunity, with
`approximately USD 350 million of pre-tax
`annual operational synergies expected
`to be achieved by year four after consum-
`mation of the offer
`
`THE TIME TABLE AND THE STEPS OF THE OFFER PROCESS
`
`READ MORE
`
`1.
`
`Estimated date for
`publication of the offer
`document: 19 May 2016
`
`2.
`
`Estimated acceptance
`period: 20 May 2016 to
`29 July 2016
`
`3.
`
`Estimated settlement
`date: 5 August 2016
`
`You may read more about the offer
`in “Statement by the Board of
`Directors of Meda in relation to the
`public offer by Mylan”, published
`on www.meda.se on February 10,
`2016 and the Mylan’s offer
`announcement available at:
`medatransaction.mylan.com.
`
`This means that the
`transaction might be
`finalized during the third
`quarter of 2016.
`
`3
`
`MEDA ANNUAL REPORT 2015
`
`000007
`
`

`

`CEo’s CoMMEnT
`
`Keeping our focus
`
`“ Meda’s strong performance in 2015 reconfirmed
`that our strategy is successful. We have built
`a cohesive portfolio of products that improve
`the quality of life for many people.”
`
`Meda’s performance in 2015 reconfirmed that
`we were on the right track with our strategy to
`focus on growth products, optimized base busi-
`ness and acquisitions. Sales rose to SEK 19.6
`billion driven by a strong performance in our
`growth business which was up 6%.
`I am proud of what Meda and its employees
`have achieved in 2015. We have successfully
`integrated Rottapharm, our largest ever acqui-
`sition, ahead of plan and achieved more than
`the planned synergies for the year while at the
`same time continuing to drive our day-to-day
`business forward in our respective markets.
`We have now achieved a leading position in the
`European specialty pharma market with good
`profitability and strong cash flow generation.
`Apart from synergies and increased revenues,
`the acquisition has strengthened us in several
`areas. We now have a wider product range and
`a more balanced portfolio with the addition, in
` particular, of a strong range of Cx-products and
`increased presence in Emerging Markets. Our
`own distribution network now spans over 60
`countries, which is quite unique for a company
`of our size. In short, we are now one of the lead-
`ing European specialty pharma companies.
`This forms an excellent foundation for our
` continued growth.
`We have also taken measures to address
`issues in our Italian business. The challenges
`we are facing in Italy include a Cx business with
`potential to improve; unfavorable pricing
` conditions, and over the years high inventories
`built up at the wholesale level. We have now
`reorganized the sales force and improved the
`situation with wholesale stocks. As a result, we
`significantly reduced receivables and improved
`
`cash flow. I truly believe we are now on the right
`track with our business in Italy. In addition, we
`have made progress with our efforts to improve
`our manufacturing and supply organization with
`the divestment of Euromed in Spain end of
`2015.
`We believe it is important to be a responsible
`part in the global pharmaceutical market.
`Meda’s intention is to keep the sustainability
`efforts relevant and close to the business. Our
`approach is about making constant improve-
`ments. Meda shall be a reliable and trustworthy
`partner within the value chain. 2015 meant
`renewed takeoff in a new organization and new
`resources. Some highlights from the year are
`the renewed ISO 14001 group certificate, we
`are well underway on the Rottapharm integra-
`tion into Meda’s sustainability program and we
`elevated our efforts within business ethics and
`anti-corruption, such as a dedicated anti-cor-
`ruption policy to complement Meda’s Business
`Conduct Guidelines.
`Meda is a Global Compact signatory since
`2012 and we hereby express our continued
`support to the initiative and its principles.
`The pharma industry is still very fragmented.
`The trend toward specialization in the industry
`will continue for at least another decade. Meda
`focuses on market and patient-adapted prod-
`uct development, sales, and marketing, and do
`not conduct any high-risk, early-stage pharma-
`ceutical development. Meda’s historical combi-
`nation of acquisitions and product develop-
`ment close to the market has built a cohesive
`portfolio of improved, affordable, high quality
`products that improve the quality of life for
`many people.
`
`Meda is a very attractive company in this industry;
`we have an extensive and interesting product
`portfolio and a fantastic organization in key mar-
`kets such as Western Europe, Emerging Markets
`and the US. We are a highly interesting company
`for other companies that need to strengthen their
`own presence in these key areas.
`In February 2016, Mylan announced that it
`has made an offer to acquire the shares in
`Meda. I find the proposed transaction with
`Mylan very compelling from a strategic stand-
`point and I believe Mylan’s and Meda’s busi-
`nesses are highly complementary. The Board of
`Meda has made an evaluation of the offer and
`recommends Meda’s shareholders to accept
`the offer. The two largest shareholders have
`undertaken to accept the offer. If the offer is
`accepted, Meda will be de-listed from the
`Stockholm Stock Exchange.
`Until this process is finished and the owner-
`ship is settled, we are still Meda and the busi-
`ness needs to be run as usual going forward.
`We have obligations to our customers, patients
`and other stakeholders to uphold our good
` service, quality and reputation – and with the
`track record from our recent years, I know we
`can do just that – keep our focus and deliver on
`promises and continue to develop Meda as a
`leading specialty pharma company.
`
`Dr. Jörg-Thomas Dierks
`Chief Executive Officer
`
`4
`
`MEDA ANNUAL REPORT 2015
`
`000008
`
`

`

`CEo’s CoMMEnT
`
`5
`
`MEDA ANNUAL REPORT 2015
`
`000009
`
`

`

`sTrATEgy AnD businEss MoDEl
`
`Proven successful strategy
`
`Based on a broad product portfolio and a strong cash flow,
`Meda’s business concept is to identify, secure access to,
` integrate and commercialize pharmaceutical products in the key
`therapy areas, and products for self-treatment and preventive
`healthcare (Cx/OTC).
`
`Focus on sales
`and marketing
`
`FINANCIAL TARGETS
`
`• Organic growth, 1–2% over a business cycle
`• EBITDA margin above 30% moving toward 35% over time
`• EBITDA cash conversion at 60–70%
`
`To achieve the financial goals, Meda has applied the following strate-
`gies: Focus on sales and marketing, Market and patient-adapted prod-
`uct development, Growth through acquisitions and A focused portfolio.
`
`The company’s main focus is sales and
`marketing. One of Meda’s assets is the
`ability to commercialize products through
`its global organization. Key activities are
`primarily sales and marketing, develop-
`ment of existing products, manufacturing
`and supply.
`
`MEDA’S POSITION IN THE PHARMACEUTICAL VALUE CHAIN
`
`Meda holds a special position in the value chain. The company does not conduct any high-risk, in-house, early-stage
` pharmaceutical development. New products have been secured through acquisitions. Instead, Meda is focused on
`market and patient-adapted product development in key therapy areas, and sales and marketing.
`
`Drug discovery
`
`Drug development
`
`Manufacturing & supply
`
`Sales & marketing
`
`Specialist advisory
`
`Meda’s position in the pharmaceutical value chain
`
`Market adapted product development in late clinical phase, typically phase III
`
`6
`
`MEDA ANNUAL REPORT 2015
`
`000010
`
`

`

`sTrATEgy AnD businEss MoDEl
`
`Market and patient-
`adapted product
`development
`
`Growth through
`acquisitions
`
`A focused portfolio
`
`Acquisitions have historically been the
`main driver of the company’s expansion.
`Between 2000 and 2015 Meda made
`more than 30 major acquisitions of com-
`panies and product rights. Several strate-
`gic acquisitions have added important
`products to Meda’s portfolio, and Meda
`has gained a solid understanding of the
`acquisition process (see page 8). Meda’s
`largest acquisition to date was completed
`in 2014 when Italian specialty pharma
`company Rottapharm was acquired.
`
`Meda focuses on three therapy areas;
`Respiratory, Dermatology, and Pain and
`Inflammation. This focus is the foundation
`for clear synergies in sales and marketing.
`The portfolio includes prescription drugs
`as well as consumer healthcare (Cx) and
`OTC products. Cx is a highly attractive
`area with benefits such as non-reimburse-
`ment, free pricing, good margins and lim-
`ited generic competition. Around 60% of
`Meda’s product sales are in Rx and around
`40% are in Cx/OTC.
`
`Meda’s development work can best be
`described as market and patient-adapted
`product development in late clinical
`phases with the objective of, for example,
`prolonging a product’s life cycle or
` securing approval for a product so that it
`can be launched in new markets.
`Meda improves the properties of
` existing products through:
`• More efficient and new formulations
`(EndWarts and Astepro)
`• New product combinations (Dymista)
`• Internationalization of products
`(Novolizer)
`
`Meda does not conduct any in-house,
`early-stage pharmaceutical development.
`New products mainly come to the company
`through the acquisition of companies,
`product rights and through partnerships
`with other pharmaceutical companies.
`Growth is continually supported by
`investments in product and market
` development. The combination of new
`launches and increased investments in
`new markets has supported growth in
`2015.
`
`7
`
`MEDA ANNUAL REPORT 2015
`
`000011
`
`

`

`sTrATEgy AnD businEss MoDEl
`
`Acquisitions support
`our strategic direction
`
`Three key reasons
`There are three key reasons why acquisitions
`have been an attractive source of growth for
`Meda:
`• Results clearly suggest that bigger is better in
`the pharma industry. On average, the EBITDA
`margin in large pharma companies tends to
`be significantly higher compared to small
`pharma companies
`• The pharma industry is still very fragmented,
`meaning that the number of potential acquisi-
`tions will remain high and that the business
`model is sustainable
`• Acquisitions have been the key source of new
`business and core competence in Meda,
`building a foundation for organic growth
`
`1. Transaction
`A decision is made based on a
` combination of strategic and financial
`objectives. Before closing the deal,
`Meda prepares a detailed execution
`plan for how to integrate the new
`asset. This means that integration can
`start immediately on closing. The ful-
`filment rate of these plans is normally
`close to 100% after 6–9 months.
`
`Acquisition process and criteria
`
`Growth by acquisitions has been an important element of Meda’s
`strategy. Over the last 15 years Meda has acquired more than
`30 companies and product rights around the world. This has led to
`strong sales growth and created significant shareholder value.
`
`1.
`
`T
`
`R
`
`A
`
`N
`
`S A C T ION
`
`ACQUISITION
`PROCESS
`
`W
`
`O
`
`3. CASH FL
`
`3. Cash flow
`To make the next acquisition
` possible, Meda maintains a strong
`focus on the generation of cash
`flow throughout the integration
`process.
`
` 2. INTEGRAT I O N
`
`
`
`2. integration
`Integrating acquisitions is a key competence at Meda. When a deal is
`announced it normally creates uncertainty within the acquired organiza-
`tion. This problem is minimized by quick, clear and respectful communica-
`tion of objectives and action plans. It is stressed that what awaits is inte-
`gration into Meda’s organization, values and culture, rather than a merger
`of two cultures.
`The process is facilitated by the vast experience and continuity in
`Meda’s acquisitions team, which makes it possible to quickly exploit the
`full synergy potential. The fact that a vast majority of Meda employees
`entered the company by way of acquisition, minimizes the risk of divisions
`between “old” and “new” parts of the company. Integration also includes
`the amalgamation of product portfolios.
`
`8
`
`MEDA ANNUAL REPORT 2015
`
`000012
`
`

`

`Acquisitions and sales
`development
`
`sTrATEgy AnD businEss MoDEl
`
`2005
`
`2006–2007
`
`2008–2009
`
`2011
`
`2013
`
`2014
`
`Meda acquired the
`European business
`of Valeant thereby
`establishing Meda in
`Eastern Europe. Meda
`expanded its rights to
`Dymista to Europe and
`other major markets.
`
`The acquisition of Viatris
`was of great importance
`for several reasons. It
`transformed Meda into a
`pan-European specialty
`pharma company,
`strengthened the
`product portfolio and
`generated significant
`synergies.
`
`The acquisition of the
`3M European pharma-
`ceutical bulsiness
`strengthened Meda’s
`European product
`portfolio. The MedPointe
`acquisition established
`Meda in the US and
`provided access to an
`allergy franchise with
`the market-leading
`products Astelin and
`Astepro, as well as the
`development project
`Dymista which was in
`clinical development at
`that time.
`
`Meda acquired the
`global product rights
`to Elidel from Novartis.
`Elidel is one of Meda’s
`most important
`dermatology products
`in the area of atopic
`dermatitis.
` Antula, a Nordic
`company focusing on
`OTC was acquired at
`the beginning of 2011.
`CB12 was one of the
`brands in the Antula
`product portfolio
`alongside other well-
`known brands such as
`Zyx and Naloc.
`
`Meda acquired
`Rottapharm, its largest
`acquisition to date,
`adding a portfolio of
`strong Cx-brands as
`well as the new key
`therapy area Pain and
`Inflammation.
`
`Meda acquired Acton
`including the patented
`product Aerospan,
`expanding Meda’s
`product portfolio in
`the key Respiratory
`therapy area. The EB24
`acquisition was an
`important addition to
`Meda’s OTC portfolio
`and a complement to
`CB12.
`
`ACQUISITIONS AND SALES DEVELOPMENT
`
`Acquisitions have been an important source of growth for Meda. The graph below shows how some transformational acquisitions have
`affected Meda’s sales.
`
`Sales, SEK billion
`
`20
`
`19.6
`
`18
`
`16
`
`14
`
`12
`
`10
`
`8
`
`6
`
`4
`
`2
`
`0
`
`2000
`
`2001
`
`2002
`
`2003
`
`2004
`
`2005
`
`2006
`
`2007
`
`2008
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`2015
`
`9
`
`MEDA ANNUAL REPORT 2015
`
`000013
`
`

`

`invEsTMEnT sTory
`
`Investment Story
`
`Meda is a leading international specialty pharma company with a focus
`on growth products, optimized base business and acquisitions.
`The product portfolio has focus on selected geographical and therapy
`areas. The company has a clear position in the value chain, an efficient
`organization and strong cash flow generation.
`
`supporting growth drivers
`Growth drivers exist on several levels, such as
`demographics (increasing and ageing popula-
`tion), economics (higher disposable income)
`and the changing structure of the pharma-
`ceutical market (expiring patents). Read more
`about what drives demand on the global
` pharmaceutical market on page 12.
`
`Acquisitions drive growth in two ways
`Acquisitions have been the primary source of
`growth. Meda has been built on several trans-
`formational acquisitions. The addition of new
`products is also key to Meda’s growth over
`time. Acquisitions drive growth in two ways.
`Firstly by adding acquired revenue. Secondly
`by creating new organic growth opportunities
`which are realized through market and patient-
`adapted product development and expanded
`geographical footprint.
`
`The successful integration of Rottapharm
` during 2015 opened possibilities for further
`organic growth based on an expanded position
`(Pain and Inflammation) and sustained potential
`(Respiratory and Dermatology) in key therapy
`areas, clinically-proven Cx- and OTC products
`– together with the increased presence in
`Emerging Markets.
`
`SALES AND EBITDA1) (SEK million)
`
`FREE CASH FLOW1)/NET SALES (%)
`
`NET DEBT/EBITDA1)
`
`04
`
`05
`
`06
`
`07
`
`08
`
`09
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`0123456
`
`04
`
`05
`
`06
`
`07
`
`08
`
`09
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`25
`
`20
`
`15
`
`10
`
`05
`
`04
`
`05
`
`06
`
`07
`
`08
`
`09
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`Sales
`
`EBITDA
`
`Free Cash Flow/Net Sales
`
`Net Debt/EBITDA
`
`1) Excluding non-recurring items.
`
`20,000
`
`15,000
`
`10,000
`
`5,000
`
`0
`
`10
`
`MEDA ANNUAL REPORT 2015
`
`000014
`
`

`

`invEsTMEnT sTory
`
`VALUE CREATION
`
`Meda has a solid foundation and a business model supported by several growth drivers. The combination of acquisitions and continously
`strong cash flow has been the key factors in Meda’s value creation.
`
`NEW
`BUSINESS
`
`CURRENT
`BUSINESS
`
`THREE FOCUS
`AREAS
`
`1. M&A
`
`2. groWTh
`businEss
`
`3. bAsE
`businEss
`
`VALUE
`CREATION
`
`1. iDEnTifiCATion
`AnD inTEgrATion
`of M&A
`
`2. EffECTivE
`globAl businEss
`plATforM AnD
`opErATionAl
`EffiCiEnCy
`
`3. ClEAr
`ThErApEuTiC
`foCus
`
`SHAREHOLDER
`VALUE
`
`1. profiTAblE
`groWTh
`
`2. CAsh floW
`
`3. finAnCiAl
`flEXibiliTy
`
`The daily business has three focus
`areas: growth business, optimized
`base business and acquisitions.
`1. Meda has strived to grow sales
`and create shareholder value
`through acquisitions. These
`should support the strategic
`direction, strengthen key ther-
`apy areas, increase focus on
`promising products or attrac-
`tive geographical areas, and
`offer significant synergies.
`2. Around 30% of the portfolio
`consists of products and
` geographical areas with good
`growth potential. Growth is
`continually supported by
`investments in product and
`market development.
`3. The remaining 70% of the port-
`folio consists of products with
`limited growth potential, but
`strong and stable cashflow
`generation that enables further
`acquisitions.
`
`There have been three dimen-
`sions to Meda’s value-creation
`efforts :
`1. Identification and integration of
`selected acquisitions, where
`Meda has secured synergy
`gains in different parts of the
`value chain, and has ensured
`that acquired products can be
`profitably commercialized.
`2. An effective, global business
`platform and operational effi-
`ciency, where Meda develops
`and commercializes products
`in attractive markets supported
`by efficient manufacturing and
`supply, sales and marketing
` processes.
`3. Clear therapeutic focus, where
`Meda has a specialist role in
`building a uniform product
`portfolio in selected therapy
`areas and is developing the Cx
`and OTC portfolio.
`
`Shareholder value is crucial for
`Meda. It is the result of the compa-
`ny’s value creation activities and
`its financial results:
`1. Meda has a broad product port-
`folio and a strong cash flow. The
`cash flow has allowed Meda to
`finance necessary investments
`in future growth, such as the
`company’s own product and
`marketing investments, as well
`as acquisitions.
`2. The investments, combined
`with ongoing efficiency
`improvements, enable Meda to
`maintain sustainable growth in
`both profits and cash flow.
`3. Meda has a high cash conver-
`sion rate, which means that a
`large percentage of the com-
`pany’s profits are converted
`into free cash flow. This has
`allowed the company to invest
`in the business and pay divi-
`dends to shareholders over
`time.
`
`11
`
`MEDA ANNUAL REPORT 2015
`
`000015
`
`

`

`MArkET
`
`Market
`
`Continued good long-term growth
`
`The global pharmaceutical market is expected to show continued good growth in 2016–2020.
`
`34%
`
`The global pharma-
`ceutical market is
`expected to grow
`around 34% by 2020.
`
`According to IMS Consulting
`Group the global pharmaceutical
`market is expected to grow by a
`compound annual growth rate of
`4–7% in 2016–2020, compared to
`6.2% in 2011–2015. The major
`European markets are expected to
`grow at 1–4% in 2016-2020,
` compared to 2.9% in 2011-2015.
`In pharmerging countries growth
`will remain strong at 7–10%, driven
`primarily by wider access to health-
`care. The US remains however the
`largest market, and good growth is
`expected in the coming years, and
`will increase its share of the total
` market to 41% in 2020.
`Branded drugs1) are expected to
`continue to grow and will account
`for more than half of the spending
`on medicine in 2020, driven by
`specialty pharma and increased
`
`accessibility for patients. Growth
`is, however, offset by expiring pat-
`ents and increased use of gener-
`ics. Specialty medicines, driven by
`new treatment options, will account
`for 28% of total global spending in
`2020, up from 26% in 2015. Spe-
`cialty medicines will continue to
`have a significantly higher share of
`the market in developed coun-
`tries, where it will account for 36%
`of spending in 2020, compared to
`only 12% in pharmerging markets.
`The OTC share of the global
`pharmaceutical market will remain
`stable at 13% in 2016-2020. The
`percentage of OTC sales is signifi-
`cantly higher in growth markets
`than in Europe, North America and
`Japan.
`Developed markets will con-
`tinue to use more original branded
`
`and specialty medicines per
` capita, while pharmerging markets
`will use more generics and OTC
`medicines.
`
`GLOBAL PHARMACEUTICAL MARKET, 2015 AND 2020
`
`In 2015 drugs were sold for a total of USD 1,069 billion globally, according to IMS Consulting Group.
`
`Value in USD billion
`1,500
`
`1) Branded drugs – pharmaceuticals
`with strong brand and patents.
`
`2) Developed markets are defined
`as Canada, France, Germany, Italy,
`Japan, South Korea, Spain, UK
`and US.
`
`3) Pharmerging countries are defined
`as Algeria, Argentina, Brazil, China,
`Colombia, Egypt, India, Indonesia,
`Mexico, Nigeria, Pakistan, Poland,
` Romania, Russia, Saudi Arabia, South
`Africa, Thailand, Turkey, Ukraine,
` Vene zuela and Vietnam.
`
`1,200
`
`900
`
`600
`
`300
`
`0
`
`Source: IMS Consulting Group
`
`12
`
`1,430
`
`1,400
`
`1,069
`
`870
`
`900
`
`684
`
`375
`
`345
`
`249
`
`135
`
`150
`
`180
`
`Developed2)
`
`2015
`
`Pharmerging3)
`
`Rest of World
`
`Global
`
`2020 low estimate
`
`2020 high estimate
`
`MEDA ANNUAL REPORT 2015
`
`000016
`
`

`

`MArkET
`
`Growth drivers
`
`Global pharmaceutical demand is mainly driven by demographic trends, economic development, and new drugs and therapies.
`
`Demographic trends
`A fundamental driver of drug
`demand is the global population
`increase. An aging population, pri-
`marily in Europe, North America
`and Japan is driving demand for
`pharmaceutical products for age-
`related and chronic diseases. The
`combination of increased medica-
`tion use per patient and a growing
`number of new patients is driving
`pharmaceutical market volumes in
`the number of prescriptions and
`dosages dispensed.
`
`Economic development
`More and more people get access
`to modern healthcare and medica-
`tions as incomes, healthcare bud-
`gets and insurance coverage
`increase in emerging markets. For
`example, China is expected to pro-
`vide basic medical insurance to
`
`nearly the entire 1.4 billion popula-
`tion by 2020. In some developed
`markets, growth is held back by
`the increased use of generics as
`well as efforts to control health-
`care spending. Growth is, how-
`ever, expected to increase as
`economies recover and advances
`are made in important therapy
`areas. Greater interest in preven-
`tive care and quality of life is driv-
`ing demand for OTC products.
`The OTC market also benefits
`from consumers moving from
`Rx to Cx products to treat their
` disease conditions. Changes in
`eating habits are also impacting
`the demand for products such
`as those to treat diabetes.
`
`Development of new drugs
`An increasing amount of diagno-
`ses, especially in lifestyle dis-
`
`PHARMACEUTICAL SPENDING IN SOME IMPORTANT MARKETS
`
`Share of
`global market
`2015, %
`
`Value in
`USD billion
`2015
`
`Expected growth
`per year
`2016–2020, %
`
`North America
`Western Europe 1)
`Growth markets
`
`40
`13
`23
`
`430
`144
`249
`
`5–8
`4–7
`7–10
`
`1) EU5 (Germany, France, Italy, UK and Spain) VA
`Source: IMS Consulting Group
`
`eases, can be treated with drugs.
`Specialty pharmaceuticals target-
`ing specific diseases are expected
`to become more important going
`forward, and this will support over-
`all market growth. New, advanced
`drugs can treat increasingly severe
`diseases in very small patient
`groups and these products will
`grow in importance in the devel-
`
`oped world. There is still an unmet
`medical need in most therapeutic
`areas and therefore new drugs
`with added benefits will retain
`their strong market potential. At
`the same time, more generics are
`being prescribed and this contin-
`ues to offset growth in developed
`countries.
`
`GLOBAL PHARMACEUTICAL MARKET, GROWTH RATES 2010–2020
`
`Growth is expected to remain strong. The global market is expected to grow by a compound annual growth
`rate of 4–7% in 2016–2020.
`
`Growth, %
`15
`
`12
`
`9
`
`6
`
`3
`
`0
`
`6.0
`
`4.8
`
`3.0
`
`11.9
`
`10.0
`
`7.0
`
`7.0
`
`6.2
`
`4.0
`
`4.0
`
`5.2
`
`1.0
`
`Developed
`
`Pharmerging
`
`Rest of World
`
`Global
`
`2010–2015 actual
`
`2016–2020 low estimate
`
`2016–2020 high estimate
`
`Source: IMS Consulting Group
`
`13
`
`MEDA ANNUAL REPORT 2015
`
`000017
`
`

`

`MArkET
`
`Rapid change, challenges and opportunities
`
`The global pharmaceutical industry is changing at a rapid pace and companies are facing major
`challenges. This trend brings important opportunities for specialized companies such as Meda
`to compete in well-defined areas.
`
`More expensive research
`but not more drugs
`The major pharmaceutical companies have
`increasingly seen the patents for their block-
`buster drugs expire. The cost of research for
`new pharmaceuticals has increased consider-
`ably, and there are fewer blockbusters in the
`pipeline. Instead, pharmaceutical companies
`are investing in more diversified research port-
`folios containing advanced products aimed at
`specific therapeutic areas. Existing patented
`products that do not fit into the new strategy
`may be divested, for example to specialty
`pharma companies.
`
`Consolidation activity has increased
`The increasing cost of R&D